Company President Lowell D. Pratt Jr., CFA shared his thoughts earlier this morning about the market correction and our next steps on the front page of our website and LinkedIn. If you would like to know what we do during market corrections in your portfolio, those posts are great resources. This post will dive into the details underpinning the correction.
1. This correction is about international conditions rather than the US economy.
Explanations for the sell-off include plunging oil prices, slowing Chinese economic growth, company earnings and the chance that the Federal Reserve will begin raising interest rates next month. It is impossible to pinpoint any one reason for the correction and it is likely that each plays some role but the data show that this is more about international weakness and its impact on U.S. company earnings than worries of a rate increase or a U.S. recession.
Through the end of last week, the sectors losing the most ground were Energy and Information Technology. With crude oil plunging below $40 a barrel and IT firms’ reliance on overseas sales – Apple, Intel, Google, Microsoft for example – it is not surprising that these two sectors have fallen the most as global markets plunge.
If this was about the Fed’s September decision about interest rates, we would expect to see opposite movements for Financials, the consumer sectors and Utilities.
2. The correction is indiscriminate.